Mid Wynd International 10 May 2024

Mid Wynd International (MWY) is now managed by Lazard Asset Management, following the departure from Artemis of the previous portfolio managers in 2023, and a beauty parade conducted by the board. The board’s review resulted in the portfolio management duties being assigned to Louis Florentin-Lee and Barnaby Wilson (Barney) who have co-managed Lazard’s Global Quality Growth mandate since 2011. The strategy provides MWY investors with the opportunity to access a strategy historically reserved for institutional investors. Absolute performance has stood out, but relative performance hasn’t since the formal takeover in October 2023, but it is worth noting that the strategy has delivered good relative returns versus the MSCI ACWI Index and comparable strategies over the long term (see Performance).

As discussed in Portfolio, Louis and Barney look for companies that have demonstrable compounding characteristics which include having a competitive advantage within their industries, high returns on capital and strong management teams that can effectively allocate capital to reinvest and facilitate long-term growth. Therefore, turnover within the portfolio is low and the nature of returns typically geared towards generating capital growth. That said, a progressive dividend policy is a feature of MWY (see Dividend).

Louis and Barney benefit from the wealth of resources within Lazard, with analysts following their resolute focus on quality, resulting in a benchmark-agnostic portfolio with an active share of 90%. Although the investment objective hasn’t changed, only six holdings remained in the portfolio following the rebalance at the start of October, when the pair formally took control of the portfolio.

The board operates a strict Discount control policy which aims to limit the discount or premium to 2% under normal market conditions to enhance liquidity and maintain shareholder value. The trust currently trades at a discount of 2.1%, wider than its five-year average premium of 1.1%. At the time of writing MWY is not geared.

MWY provides an opportunity for retail investors to access a successful long-term strategy which has historically been reserved for institutional investors. Although the investment objective hasn’t changed, investors need to consider Louis and Barney’s longer-term philosophy, and perhaps a more committed focus on quality, with a lower-style risk exposure to value and growth when compared to the previous managers and the MSCI ACWI Index benchmark. This has been reflected in the limited number of holdings that have been carried over, and the significant increase in the US equity allocation, as well as the information technology, industrials and financials sector allocations.

We believe it may be a good time for investors to consider MWY. Louis and Barney’s focus on high quality, compounding companies, with demonstrable competitive advantages may prove valuable in an uncertain environment and an era of structurally higher inflation. Furthermore, the companies’ ability to generate sustainable cash flows can fuel future growth rather than being subject to a higher cost of borrowing in a higher-for-longer interest rate environment. On a relative basis, the new strategy has been slow to get out of the gates, however, given the strong performance from global equity indexes and global peers, which have become increasingly more concentrated. We would argue this better highlights MWY’s diversifying characteristics and lower sensitivity to the stylistic biases that are currently driving markets. We believe the long-term performance characteristics of the strategy should impress investors looking for a core equity holding. With the trust trading at a discount level close to the lower bounds of its target range, this may provide a small added boost to returns over the long term if the premium is re-established.